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Lenders play it safe amid China property woes

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Lenders are expected to stay cautious towards China’s cash-strapped property sector as Shenzhen-based developer Kaisa’s debt woes continue to rattle the market. But they will continue to lend to larger mainland companies.

“Companies from China will remain a major source of business for loan markets this year,” said Sonia Li, head of syndicated loans for Asia at JP Morgan. “But you will see a flight to quality for Chinese borrowers, particularly in light of what is happening in the real estate sector. Lenders will be very cautious to the real estate sector,” she added.

China has become a bigger part of Asia’s loan markets. According to Thomson Reuters data, China was the largest driver for loan growth in the Asia-Pacific region last year, accounting for $141.3 billion in loan volume or about 27% of the total in the region. Infrastructure, project and real estate deals accounted for slightly more than two-thirds of that volume.

Given the increasing exposure banks have to Chinese property, a protracted downturn could have a knock-on effect on the banks. “A lot of mid-sized and big Chinese banks as well as foreign banks have exposure to the China property sector. A big downturn in China real estate market would affect everyone but the mainland banks have the most exposure to the property market,” said Christine Kuo, senior credit officer at Moody’s.

For now, however, the rating agency views Kaisa’s problems as being unique to the company and, at a briefing in Hong Kong on Tuesday, Simon Wong, Moody’s senior credit officer, told reporters that he didn’t think the Shenzhen’s developer’s problems would pose a systemic risk to the sector.

“If the Kaisa case is resolved satisfactorily, such as another developer coming in and potentially buying Kaisa’s assets at fair market value, I think that would also help to ease investors’ concerns,” Wong told reporters.

related

Kaisa given respite but is still in the doghouse Kaisa default triggers broader loan worries Agile woe compounds China’s property problems Cofco Land plans up to $500m placement Loan Week, February 13-18

For now though, investors and lenders are giving the sector a wide berth.

Kaisa had been subject to unexplained bans imposed by the Shenzhen government on the sale of its property projects in Shenzhen. Reports had been circulating that other developers including Fantasia and China Overseas Land & Investment have faced similar bans but the companies have since clarified that the blocked sales are due to administrative procedures by the authorities, and not violations by the companies.

Lenders could also turn wary towards small-cap companies. “China is an important market but we expect more large-cap and higher grade companies this year compared to last year given the concerns over the mid-cap sector,” said Amit Khattar, head of syndicated loans for Asia at Deutsche Bank.

Subordination risk

Kaisa’s problems expose the risks that offshore lenders face. It had initially defaulted on a $51 million loan with HSBC. While it subsequently got a waiver from the British lender, other creditors have frozen some of its onshore bank accounts, and if it came down to a default, onshore lenders would get first dibs on the assets.

Offshore lenders are often subordinated to mainland lenders as the loans are typically issued through offshore holding companies, using the so-called red chip structure.

China’s State Administration of Foreign Exchange (Safe) has made moves to take away some of that subordination risk and, in July last year, relaxed the rules to allow mainland companies to use onshore assets as collateral when raising funds offshore. However, there are restrictions, and Safe has made it clear that the proceeds have to be kept offshore.

“The change in Safe rules means that offshore lenders can get senior secured access to Chinese companies rather than just a red chip structure,” said Khattar. “It is a meaningful development but the number of companies using this has been limited by restrictions over the use of proceeds,” he added.

Lenders have been comfortable lending to offshore holding companies, provided they are perceived to be a strong credit. For example, smartphone company Xiaomi last year tested the market with a debut $1 billion loan, which attracted 29 lenders. Xiaomi is cash rich, with no onshore borrowings.

However, weaker companies are expected to come under more scrutiny now. “Lenders have become more comfortable with loans using offshore holding company structures,” said Deutsche Bank’s Khattar. “But they will be more wary about certain credits,” he added.

This year could be a more challenging one for mainland companies as Taiwanese lenders are keen to keep their exposure to mainland companies down, and could look to diversify to Indian or Southeast Asian companies. “Taiwanese banks were big investors for China loans in the past but they have pretty tight China limits at the moment,” said JP Morgan’s Li.

But amid ongoing market volatility, more companies could start tapping the loan markets as bond yields have risen. “Bond market volatility specially in the high yield market could see more high yield issuers trying to access the loan markets in 2015,” said Khattar.

¬ Haymarket Media Limited. All rights reserved.

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Flight to safety for lenders amid China property woes

Thumbnail

Lenders are expected to stay cautious towards China’s cash-strapped property sector as Shenzhen-based developer Kaisa’s debt woes continue to rattle the market. But they will continue to lend to larger mainland companies.

“Companies from China will remain a major source of business for loan markets this year,” said Sonia Li, head of syndicated loans for Asia at JP Morgan. “But you will see a flight to quality for Chinese borrowers, particularly in light of what is happening in the real estate sector. Lenders will be very cautious to the real estate sector,” she added.

China has become a bigger part of Asia’s loan markets. According to Thomson Reuters data, China was the largest driver for loan growth in the Asia-Pacific region last year, accounting for $141.3 billion in loan volume or about 27% of the total in the region. Infrastructure, project and real estate deals accounted for slightly more than two-thirds of that volume.

Given the increasing exposure banks have to Chinese property, a protracted downturn could have a knock-on effect on the banks. “A lot of mid-sized and big Chinese banks as well as foreign banks have exposure to the China property sector. A big downturn in China real estate market would affect everyone but the mainland banks have the most exposure to the property market,” said Christine Kuo, senior credit officer at Moody’s.

For now, however, the rating agency views Kaisa’s problems as being unique to the company and, at a briefing in Hong Kong on Tuesday, Simon Wong, Moody’s senior credit officer, told reporters that he didn’t think the Shenzhen’s developer’s problems would pose a systemic risk to the sector.

“If the Kaisa case is resolved satisfactorily, such as another developer coming in and potentially buying Kaisa’s assets at fair market value, I think that would also help to ease investors’ concerns,” Wong told reporters.

related

Kaisa given respite but is still in the doghouse Kaisa default triggers broader loan worries Agile woe compounds China’s property problems Cofco Land plans up to $500m placement Loan Week, February 6-12

For now though, investors and lenders are giving the sector a wide berth.

Kaisa had been subject to unexplained bans imposed by the Shenzhen government on the sale of its property projects in Shenzhen. Reports had been circulating that other developers including Fantasia and China Overseas Land & Investment have faced similar bans but the companies have since clarified that the blocked sales are due to administrative procedures by the authorities, and not violations by the companies.

Lenders could also turn wary towards small-cap companies. “China is an important market but we expect more large-cap and higher grade companies this year compared to last year given the concerns over the mid-cap sector,” said Amit Khattar, head of syndicated loans for Asia at Deutsche Bank.

Subordination risk

Kaisa’s problems expose the risks that offshore lenders face. It had initially defaulted on a $51 million loan with HSBC. While it subsequently got a waiver from the British lender, other creditors have frozen some of its onshore bank accounts, and if it came down to a default, onshore lenders would get first dibs on the assets.

Offshore lenders are often subordinated to mainland lenders as the loans are typically issued through offshore holding companies, using the so-called red chip structure.

China’s State Administration of Foreign Exchange (Safe) has made moves to take away some of that subordination risk and, in July last year, relaxed the rules to allow mainland companies to use onshore assets as collateral when raising funds offshore. However, there are restrictions, and Safe has made it clear that the proceeds have to be kept offshore.

“The change in Safe rules means that offshore lenders can get senior secured access to Chinese companies rather than just a red chip structure,” said Khattar. “It is a meaningful development but the number of companies using this has been limited by restrictions over the use of proceeds,” he added.

Lenders have been comfortable lending to offshore holding companies, provided they are perceived to be a strong credit. For example, smartphone company Xiaomi last year tested the market with a debut $1 billion loan, which attracted 29 lenders. Xiaomi is cash rich, with no onshore borrowings.

However, weaker companies are expected to come under more scrutiny now. “Lenders have become more comfortable with loans using offshore holding company structures,” said Deutsche Bank’s Khattar. “But they will be more wary about certain credits,” he added.

This year could be a more challenging one for mainland companies as Taiwanese lenders are keen to keep their exposure to mainland companies down, and could look to diversify to Indian or Southeast Asian companies. “Taiwanese banks were big investors for China loans in the past but they have pretty tight China limits at the moment,” said JP Morgan’s Li.

But amid ongoing market volatility, more companies could start tapping the loan markets as bond yields have risen. “Bond market volatility specially in the high yield market could see more high yield issuers trying to access the loan markets in 2015,” said Khattar.

¬ Haymarket Media Limited. All rights reserved.

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New payday loan rules to cap fees, total cost and default charges …

The UK’s financial watchdog is clamping down on payday loans, with new rules to ensure that borrowers are never forced to repay more than double the amount of their original loan.

The Financial Conduct Authority (FCA) said interest and fees will be capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan will be limited to 100% of the original sum. Default fees will be capped at £15 in an effort to protect people struggling to repay their debts.

The changes, which will come into force on 2 January, mean that someone borrowing £100 for 30 days will not pay more than £24 in fees and charges if they repay the loan on time.

But the Labour MP Stella Creasy, who has led the campaign against doorstep lenders, slammed the FCA plans – unchanged from an original draft published in July – as an early Christmas present to the “legal loanshark” industry.

The FCA said it did not want to drive payday lenders out of business. The regulator estimates the lenders will lose 70,000 borrowers, 7% of the total market, as a result of the changes, as they restrict less profitable loans.

Martin Wheatley, the FCA chief executive, said: “I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers. For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”

In the five months since the FCA took over regulation of consumer credit, the number of loans and the amount borrowed has dropped by 35%.

The chancellor, George Osborne, said: “We created a powerful new consumer regulator to regulate the payday lending industry and legislated to require the FCA to introduce a cap on the cost of payday loans. This is all part of our long-term economic plan to have a banking system that works for hard-working people and make sure some of the absolutely outrageous fees and unacceptable practices are dealt with.”

But critics accused the FCA of allowing “legal loan sharks” to slip through the net. “Today’s news will be welcomed as an early Christmas present for Britain’s legal loansharks,” said Creasy. “This cap is just £1 lower than their current charges. This is an industry where some firms are making nearly three quarters of a million pounds a week from British customers – such a high cap will do little to tackle these rip-off charges.

“We’ve warned regulators this cap needs to be much lower to really change the behaviour of these companies, but today’s announcement shows they are still not listening. Other countries are much stronger at taking on these companies.”

She said borrowers in Japan, Australia, Canada and parts of the US have better protection than UK consumers.

Debt charities gave the plans a cautious welcome, but urged the regulator to ensure that lenders did not simply change their business model to flout the rules.

Joanna Elson, chief executive of the Money Advice Trust, which runs National Debtline, said: “We hope that these measures will bring an end to the inappropriate lending that we have seen from this industry. However, the FCA will need to be vigilant to ensure that lenders do not simply change their business models to try to evade the rules.”

She added that even under the new rules, many people will still end up repaying very high amounts when they would be better off with free debt advice from charities.

The Consumer Finance Association (CFA), which represents some of the best-known payday lenders, has said the plans will drive some firms out of business. It estimates that only four players will remain in the market: three online lenders and one high street chain. “We will inevitably see fewer people getting fewer loans from fewer lenders,” said Russell Hamblin-Boone, chief executive of the CFA.

Wheatley said payday lenders could disappear from the UK high street within a year, although the FCA’s modelling suggested it was more likely that a few players would remain. Speaking on BBC Radio 4’s Today programme, he said: “We don’t want to close the industry, we want to change it so that it operates in a way that delivers good outcomes.”

He dismissed industry claims that thousands of people would lose out as a result of tighter access to credit, saying there were “a lot of myths in this space”.

According to FCA modelling, a majority of the 70,000 people who will no longer have access to payday loans will make do without getting a loan; others would borrow from family or an employer and only 2% would go to a loan shark.

The biggest online payday lender, Wonga, said it “looks forward to launching a cap-compliant product”.

[…]

Sears turns to CEO again for cash to boost confidence

(Adds analyst comments and background, updates share price)

By Sruthi Ramakrishnan and Nathan Layne

Oct 20 (Reuters) – Sears Holdings Corp said it would raise as much as $625 million through an unsecured loan and equity warrants, its third fundraising in a month, as it seeks to ease suppliers’ concerns about its finances going into the critical holiday season.

Shares of the retailer jumped 21.4 percent to $34.5 on the news.

Sears said Chief Executive Officer Eddie Lampert and his hedge fund, ESL Investments Inc, would purchase roughly half of the offering, in which the right to buy unsecured senior notes and warrants will be issued to existing shareholders.

If the offering is fully subscribed, it could bring the retailer’s total fundraising this year to $2.07 billion, double the target set in March. The additional funds “will provide confidence to our vendors and other constituents,” Chief Financial Officer Rob Schriesheim wrote in a blog post.

The move comes after some insurers who offer protection to suppliers against the risk of nonpayment had cancelled or scaled back their coverage of Sears in recent weeks due to concerns over the company’s finances, people familiar with the matter told Reuters.

Analysts and suppliers said the latest funding would ease, but not eliminate, worries about Sears as a credit risk.

“It helps for this year. They will still have to inject liquidity for the next year,” given how quickly they are burning through cash, said Fitch Ratings analyst Monica Aggarwal. “There is a need for cash inflow to keep the operations going.”

Sears also announced on Monday that it would lease out seven stores to British discount fashion chain Primark for an undisclosed amount. It has been seeking to clinch such deals to earn income on underperforming space in its roughly 2,000 U.S. stores.

The fundraising marks the third time Sears has turned to Lampert for money in recent weeks. In September ESL anchored a $400 million loan, and earlier this month the fund agreed to buy $168 million out of a rights offering in Sears’ Canadian unit aimed at raising up to $380 million.

Sears said the clients of its second largest shareholder, Fairholme Capital Management, would subscribe to the latest offering. Fairholme owns 24 percent of Sears while ESL and Lampert together own 48.5 percent, Thomson Reuters data show.

Each subscription right will give the holder the right to buy one unit, comprising a senior unsecured note due 2019 and paying 8 percent interest as well as warrants to purchase common shares at a strike price of $28.41. The number of warrants will be set after the principal of the notes is fixed, Sears said.

The rally in Sears’ stock was in part due to the fact that Lampert had agreed to put in money on unsecured terms, analysts said. Last month’s $400 million loan had spooked some investors and suppliers because it was secured against 25 stores.

“I think this financing shows more of a longer-term support, and its unsecured so it’s certainly a stronger statement than the real estate financing,” said Moody’s analyst Scott Tuhy.

Tuhy said the latest financing would not ease concerns over the company’s operations.

Sears has lost almost $1 billion in the last two quarters as it struggles to cut costs to keep pace with dwindling sales.

(Editing by Kirti Pandey and Alan Crosby)

FinanceInvestment & Company Informationunsecured loan […]

Belvedere Resources Ltd: Private Placement and Loan

VANCOUVER, BRITISH COLUMBIA–(Marketwired – Oct 15, 2014) – Belvedere Resources Ltd. (TSX VENTURE:BEL) (“Belvedere” or the “Company”) is proposing to undertake a non-brokered private placement to raise up to C$ 1 million through the issuance of up to 7,142,857 common shares of Belvedere at a price of C$ 0.14 per share. In addition, Zila Corporation, a company in which a director of Belvedere has a controlling interest, has agreed to lend C$ 200,000 to the Company (the “Loan”) for general working capital purposes. The Loan is to be repaid in cash within six months or upon completion of the private placement, whichever occurs first. The Loan is secured against the assets of the Company and is non-interest bearing. An arrangement fee of C$ 5,000 will be paid by the Company to the Lender in connection with the Loan.

The Loan will constitute a related party transaction under Multilateral Instrument 61-101 (“MI 61-101”). The transaction will be exempt from the formal valuation and minority shareholder approval requirements of MI 61?101, as the Company intends to rely on the exemptions found in sections 5.5(a) and 5.7(1)(a) of MI 61-101 on the basis that the fair market value of the transaction will not exceed 25% of Belvedere’s market capitalization.

The net proceeds from the private placement will be applied to repay the Loan and to the general working capital of the Company and development of mineral assets.

The private placement is subject to acceptance and approval by the TSX Venture Exchange.

BELVEDERE RESOURCES LTD.

David Pym, CEO; Suite #404, Vancouver World Trade Centre, 999 Canada Place, Vancouver, B.C. V6C 3E2, Canada

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Commodity MarketsFinance Contact:

Belvedere Resources Ltd.

David Pym

CEO

+1-604-844-2838

Belvedere Resources Ltd.

Steven Cuthill

CFO

+1-604-513-0007

www.belvedere-resources.com […]

Toxic finance: Reckless payday lender Wonga wipes mountain of …

Image wonga-fca-payment-public.si_.jpg


Toxic finance: Reckless payday lender Wonga wipes mountain of debt

Published time: October 02, 2014 14:55 Get short URL

Reuters/Luke MacGregor

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Thousands of customers who took loans with controversial pay day lender Wonga are to have their debts written off, in an action expected to cost the ‘legal loan shark’ more than 200 million pounds.

The company will wipe the debts of 330,000 customers who are trapped in arrears of 30 days or more, while a further 45,000 customers will get to repay their loans exempt from interest.

The move is a “consequence” of Wonga’s discussions with the Financial Conduct Authority (FCA), who said the firm “was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.”

The FCA also said that Wonga did not do enough to vet customers and their ability to pay back the interest incurred on loans, which can be higher than 5,000 percent.

As a result, a large number of Wonga customers were forced to admit they were unable to pay the company back after taking out a short-term loan.

“We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations,” said the FCA’s Director of Supervision Clive Anderson.

“They [lending companies] need to lend affordably and responsibly,” he added.

Last month, the payday lender recorded a profit loss of 53 percent – one of the largest slumps in its operating history.

The lender revealed its pre-tax profit in 2013 was 39.7 million pounds, down from 84.5 million the previous year.

Wonga said the fall was due to “remediation costs” – money that it had to pay back to its customers – including 2.6 million pounds it had to pay out to more than 45,000 customers after it delivered debt collection letters from non-existent law firms.

However, Wonga did record a 15 percent rise in the number of loans issued between 2012 and 2013, worth 4.6 million pounds.

Wonga’s Chairman Andy Haste told British media there was a “real and urgent” need for change.

He also told the BBC it expected to be “smaller” and “less profitable” following increased FCA regulations, which include more stringent background credit checks.

“Our regulator is determined to improve standards in consumer credit and I share that determination,” he said.

“There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.

Labour MP John Mann called for Wonga to be brought before Parliament’s Treasury Select Committee to “explain how they lent so much money to people it knew could never afford to repay it.”

“Sadly, it comes as no surprise to learn that Wonga knowingly lent money to people who will never be able to afford to repay a loan and it is morally right that they have been forced to write off these loans,” he added.

This is not the first time Wonga has come under heavy criticism for its practices.

Since July, the firm has not been allowed to produce advertisements designed to attract young people, such as its campaign that used puppets, screened during children’s television programming – an attempt to soften the brand, critics allege.

In 2012, Wonga was also forced to apologize to Labour MP Stella Creasy after she received personal abuse via Twitter, calling her “nuts,” “pathetic” and “a raving self-publicist.”

The MP has long been outspoken on payday loan companies, and has lobbied the government to set a cap on the amount customers can be charged for small, short term loans.

While the MP welcomed the fall in Wonga’s profits, she said the rise in the number of loans being issued should be a cause of concern.

“The fact that they are reporting a 15 percent increase in customers for this toxic form of finance reflects that there are still millions of people for whom there is too much month at the end of their money,” she told the Financial Times.

Under new rules issued by the FCA, payday lenders will not be able to reclaim debts directly from customers’ bank accounts, while a cap of 0.8 percent interest per day has been proposed for short term loans.

According to the UK’s Public Accounts Committee, around 2 million people in the UK used payday loans, while the Office of Fair Trading believes around 1.8 billion pounds is loaned in high cost plans each year.

[…]

Soccer-Manchester United confirm Falcao one-year loan

* Falcao loan deal confirmed

* Takes United summer spending to $250 million (Adds details, quotes)

LONDON, Sept 2 (Reuters) – Manchester United confirmed they had signed Colombian striker Radamel Falcao on a one-year loan deal from Monaco after the transfer window closed on Monday.

“#mufc is delighted to announce Radamel Falcao has joined on a 1-year loan from Monaco with an option to buy,” the Premier League team said on its Twitter feed.

Falcao was in Manchester for a medical examination ahead of the proposed season-long loan from Monaco, a move revealed to Reuters on Monday by a source close to the deal.

The 28-year-old scored 11 goals in 20 appearances for Monaco after joining from Atletico Madrid for a fee of around 50 million euros (65.65 million US dollar) last year.

“I am delighted to be joining Manchester United on loan this season,” Falcao said on United’s website (www.manutd.com).

“Manchester United is the biggest club in the world and is clearly determined to get back to the top. I am looking forward to working with Louis van Gaal and contributing to the team’s success at this very exciting period in the club’s history.”

Falcao, who missed the World Cup after suffering a serious knee injury, had been linked with several top European clubs, including Real Madrid.

He will compete with regular strikers captain Wayne Rooney and Dutchman Robin van Persie for a place in a reshaped United team.

“I am delighted Radamel has joined us on loan this season,” Van Gaal said.

“He is one of the most prolific goalscorers in the game. His appearance-to-goal ratio speaks for itself and, when a player of this calibre becomes available, it is an opportunity not to be missed.”

Financial details were not disclosed but British media reports suggested the deal cost United 6.0 million pounds (9.96 million US dollar).

Manchester United earlier completed the signing of versatile Netherlands international Daley Blind and the Falcao move tipped the club’s summer spending spree past 150 million pounds ($249 million) following the British record transfer fee paid to Angel di Maria.

They will recoup some of that cash after selling England forward Danny Welbeck to Arsenal, while Mexico striker Javier Hernandez has also departed on a season-long loan to Real Madrid.

United are still looking for their first win under Van Gaal having drawn two and lost one match in the Premier League and crashed out of the League Cup 4-0 to lower league MK Dons.

(1 US dollar = 0.6022 British pound) (Reporting by Ian Ransom in Melbourne, editing by Nick Mulvenney; Editing by Nick Mulvenney)

SoccerSports & RecreationManchester UnitedFalcaoMonaco […]

Watchdog plans cap on payday loan charges | Money | The Guardian

Image Payday-loans-campaigners-011.jpg

Payday loans campaigners on Brighton beach ahead of the Labour party conference, 2013. Photograph: David Levene/tha

Payday lenders stand to lose more than two-fifths of their revenues, with smaller firms forced out of business under a further clampdown proposed by the financial watchdog.

People taking out payday loans will never have to repay more than twice the sum they borrowed under the Financial Conduct Authority plans, which it estimates would cost the £1bn payday loan industry £420m in lost revenues.

A borrower could be expected to save £193 a year in charges, the regulator said.

But money-saving experts warned that customers would still face hefty interest charges under the measures.

The regulator’s plan comes a day after newly appointed Wonga chairman Andy Haste announced that he was axing the payday lender’s cuddly grandparent puppets that appear in adverts during children’s TV programmes, as part of an attempt to clean up its act. Haste said he expected the FCA cap would mean Wonga would become a “smaller and less profitable business” in the short term.

The Church of England has condemned Wonga as “morally wrong” and pledged to compete the industry out of existence by boosting credit unions. But Martin Wheatley, chief executive of the FCA, said it was not the regulator’s intention to drive payday lenders out of business. “We recognise that payday lending has a role in society,” he told BBC Radio 4’s Today programme.

The regulator estimates that 1.6 million people took out 10m loans worth £2.5bn last year. More than half of borrowers had to pay extra charges because they did not repay their loan on time. “Unfortunately that has been a big part of the business model, where the profitability comes from, frankly, people who can’t afford the loan, and that is why the additional cap acts as a backstop to stop people ratcheting up loans many, many times the original amount,” Wheatley said.

Under the FCA proposal someone who borrowed £100 from a payday lender and paid it back within the agreed 30 days would pay a maximum of £24 in charges. Fees for late payment would be capped at £15, with a total price cap of 100% of the original loan to stop default charges spiralling out of control.

The FCA said it had tested other price caps, but double the original loan was easy for consumers to understand.

The regulator will publish its final rules in early November following a consultation period, with the aim of having a price cap in force from January 2015.

Stella Creasy, the Labour MP who has led the campaign against payday lenders, said British consumers would be less well protected than those in the US or Japan.

“Anyone who thinks today’s announcement is the end of legal loan sharking in Britain is in for a nasty shock,” she said. “Without further revision, this total cost cap of 100% of the borrowed amount will leave British consumers less well protected than their counterparts in Japan and most of Canada and the United States. Not everyone who takes out a payday loan gets into financial difficulties, but enough do due to the terms and structure of the loans. It is clear the business model is not fair. If the level of the cap does not remove the incentive to do this it is meaningless. That’s why the FCA should, and could, go much further in providing the protection consumers in Britain need from the vicious cycle of debt these loans all too often create.”

The Labour party has called for the cap to be introduced in October to prevent people from overstretching themselves over Christmas.

Debt charities also warned that a cap on loans would not be enough to protect borrowers from irresponsible lending.

“A payday loan cap is not the final piece of the puzzle; consumers need more choice and access to advice,” said Citizens Advice chief executive Gillian Guy. “Not only is the cleanup of the existing market essential, banks need to step up to the plate to offer a responsible micro-loan. Payday loans are often used to cover the cost of daily essentials like gas and electricity bills or rent. The cap has removed some of the gamble of taking out a payday loan, but it is still an expensive form of borrowing.”

The StepChange debt charity called on the FCA to require lenders to share information to prevent consumers taking out multiple loans.

The FCA had previously shied away from a cap on payday lenders because it feared it would drive people desperate for short-term cash into the arms of illegal loan sharks.

Wheatley acknowledged this was a risk: “The actual number of people who consider loan sharks or use them is very very low … it might increase, but frankly that is an illegal segment of the market and we would work very closely with other authorities to ensure that market doesn’t grow.”

[…]

Two-Thirds of Payday Loan Users Trapped in Cycle of Debt …

Image PR-Image-Payday-Loan-by-Duckie-Monster-614x279.jpg

Vancity one of the first to offer payday loan alternative

Vancouver, BC – A poll released today by Vancity indicates 67 per cent of payday loan users in the Lower Mainland and Greater Victoria are borrowing several times a year.

The credit union poll, which was conducted by Insights West, indicates 35 per cent took out a payday loan once a month or more. Having an unforeseen expense they didn’t anticipate (38 per cent) and getting behind on bills (37 per cent) are the main reasons why borrowers said they used payday loans. Another 22 per cent said it was because they had a debt that was due.

Today Vancity became one of the first mainstream financial institutions to launch an alternative to payday loans for its members. The new Vancity Fair & Fast Loan™ reduces costs for borrowers and helps them break the cycle of debt.

Under the Vancity Fair & Fast Loan, if a member borrowed $300 for the minimum term of two months and paid it off after two weeks, it would cost $2.20, which is 19 per cent annual percentage rate (APR). Under B.C. legislation, the maximum amount that can be charged for a $300 payday loan is $69, which would be 600 per cent annual percentage rate.

Members can borrow up to $1,500 and be approved in about an hour. And because borrowers have up to two years to pay back the loan, they can build their credit history in the process. The loans are relatively small and have more inclusive qualifying criteria so members with lower credit ratings have a better chance of being approved.

According to Consumer Protection BC, the provincial regulator of payday loans, more than 100,000 British Columbians took out 800,000 payday loans in 2013.

The Vancity poll indicates up to 60 per cent of payday loan users are somewhat or very likely to consider a short-term, same-day loan from a credit union. It also found 37 per cent of survey respondents carried a balance on their credit card, 23 per cent had to borrow money for an unforeseen expense and 22 per cent got behind on bills.

The poll was conducted among 990 Lower Mainland and Greater Victoria adults, which includes an oversample of 131 payday loan users.

“The Vancity Fair & Fast Loan is a low cost, long term alternative to help members get out of the cycle of debt and build their credit history,” says Linda Morris, Vancity’s senior vice-president of business development, member and community engagement. “It’s one of the ways we are working to enhance the financial well-being of those who have been underserved by mainstream financial institutions.”

Additional sources of information:

Insights West Vancity poll results snapshot, presentation and data tables
www.paydayloanrightsbc.ca
Backgrounder: Payday Lending in BC, Consumer Protection BC
Pay Day Lending: In Search of a Local Alternative, see page 15, Centre for Community Based Research and funded by the Wellesley Institute (2010)

About Vancity:

Vancity is a values-based financial co-operative serving the needs of its more than 501,000 member-owners and their communities through 57 branches in Metro Vancouver, the Fraser Valley, Victoria and Squamish. As Canada’s largest community credit union, Vancity uses its $17.5 billion in assets to help improve the financial well-being of its members while at the same time helping to develop healthy communities that are socially, economically and environmentally sustainable.

Tweet us @vancity and connect with us on Facebook.com/Vancity.

For more information:

Lorraine Wilson | Vancity
T: 778-837-0394
mediarelations@vancity.com

Mario Canseco | Insights West
T: 778-929-0490
mariocanseco@insightswest.com

Photograph: Duckie Monster

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Fast Cash Payday Loans Quick Cash Loans Pressing Loans …

Are the NSF fees, late charges and penalties piling up? If you have to borrow money quick and with no questions asked, payday loans are the reply. Canadian on-line payday loans are accessible for those that live in Alberta, British Columbia and Ontario and can help you from a financial mess.

The solution to this problem is fast cash loans for the unemployed. Such payday loans uk, which are sanctioned in several hours time, are especially helpful in instances where people are caught up in some grave emergency, like a medical emergency.

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In the long run, it turns out to be incredibly lucrative. This means the sales price of the property (that is raised as a result of the improvement) appreciably exceeds the particular cash outlay for the home.

If you’re going through financial issues, during the loan repayment period, significant penalties will never be levied. The terms of the contract are more lenient than some other conventional loans.

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That is an especially great option amongst first time home loans for those keen on buying a FHA foreclosure house. Beneath this program, down payments as low as $100, modest quantity of repair escrow and about $ 2,500 for closing cost aid is comprised.

Every month, you are certain to draw some money to repay the loan. This is in itself an extra payment taken out of your earnings. Also, if you are intending to retain your student debt to get a tax break, then give it a second thought after analyzing the national income tax laws. Largely, just USD 2500 of the interest may be deducted annually. Put into this, if you start getting a decent sum (say USD 70,000) per year and you are single, your tax break amount could be phased out. Eventually, you’ll either pay more interest or more tax, so ideally, it is best to pay off student loans as soon as possible.

The interest that’s charged upon the loan is also quite economical and because the loan is granted to pupils the lenders make it a point to keep the rate of interest low. If you are intending upon getting this type of loan then you will not be billed more than 20% rate of interest at a time. This feature makes such loans an enticing proposal for pupils.

In the case of open end HELs, the debtor is free to choose when and how often to borrow from the equity. Like closed end HELs, they could get as much as 100% of the worth of a home. This loan includes a repayment period of about 30 years with varying rates of interest. The EMIs is as low as the interest which is due.

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